March 27, 2014 / 2:05 PM / 3 years ago

NordLB bolsters capital via sale of credit risks

FRANKFURT, March 27 (Reuters) - German state-owned bank NordLB has bolstered its capital by offloading risks from a bundle of loans worth 11.4 billion euros via a placing with investors.

Banks have had to increase the amount of capital they hold to back their lending in the wake of the financial crisis when many of them had to be rescued by taxpayers. In Europe, banks are trying to beef up their capital ahead of a health check on the industry by regulators later this year.

NordLB said on Thursday that the deal - known as Northvest - reduces the bank’s risky assets by around 4 billion euros ($5.51 billion) and releases 350 to 400 million of equity.

As a result, the bank’s core capital ratio will increase by 0.6 percentage points, according to a person familiar with the bank.

The bank’s capital ratio stood at 11.3 percent at the end of September under international bank rules called Basel 2.5, a softer version of the more stringent Basel III regime that comes into effect fully by 2019. NordLB has not released a Basel III figure.

The Basel III regime roughly triples how much capital banks must hold compared with before the 2007-09 crisis.

The European Banking Authority (EBA), the EU watchdog coordinating bank health checks wants banks to have a core capital ratio of 8 percent and a ratio of above 5.5 percent during a three-year stressed scenario.

Under the Northvest deal, NordLB sold securitised credit risks worth 450 million euros related to 11.4 billion euros in loans from a number of asset classes - aircraft, renewable energy, commercial real estate and German corporates, the bank said. ($1 = 0.7254 Euros) (Reporting by Arno Schuetze. Editing by Jane Merriman)

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